 | |
- close
- close
|
|
Topic
Top news source/blog that we're missing
Why do you recommend this news source?
|
||
WIKI ANALYSIS
Hugo Boss AG manufactures clothing and accessories for the mid-range luxury fashion market through its BOSS and HUGO brand lines. Though Hugo Boss was originally a men’s businesswear company, it has since expanded into women’s clothing (13% of 2008 sales)[1] and leisure and sportswear. As of the end of fiscal 2008, the British private equity firm Permira owned 88% of Hugo Boss’s common shares and 55% of its preferred shares, bringing its total ownership stake to about 72% of the company’s total capital.[2]
Despite a 3% increase in sales in 2008, Hugo Boss reported a 27% decrease in net income for the same period, reflecting the difficulty facing luxury manufacturers in an economic downturn.[3] Europe and the Americas, the hardest hit regions in the 2008 financial crisis, accounted for over 88% of 2008 sales,[4] exposing Hugo Boss to the weak conditions in these markets. Additionally, the U.S. dollar, Hong Kong dollar, and British pound were all relatively weaker than the euro until mid-2008, meaning that each dollar or pound spent converted to a smaller number of euros, Hugo Boss's reporting currency. As a result of these unfavorable exchange rates, fiscal 2008 sales (in euros) grew by just 3%, despite the fact that sales in local currencies (before converting to euros) were up 6%.[5]
Business Overview
Business and Financial Metrics
Hugo Boss has expanded its offerings to include women's clothing, though menswear still brought in 87% of all sales in 2008, while only 13% of sales were attributable to womenswear.[6] Despite the relatively small contribution of womenswear to total sales, the segment has expanded rapidly (from sales of $86 million in 2004[7] to $322 million in 2008) and has been a major source of the company's growth. In 2008, another driver of sales growth was the shoes and leather accessories segment (launched in 2005), whose sales jumped 15% to $303 million (12% of total sales).[8]
Brand Lines
- BOSS (90.1% of 2008 sales)
- BOSS Black is the company's original line focused on business attire, which now offers clothing for both men and women
- BOSS Selection is the company's high-end menswear line launched in 2005
- BOSS Orange is the company's primary line for casuals and leisurewear for men and women
- BOSS Green is the company's line of more fashionable, sporty menswear
- HUGO (9.9% of 2008 sales)
- The trendier HUGO line offers both men's and women's clothing. The company describes the line as having an "unconventional and avant garde fashion".[9]
| Annual Income Data, millions USD[10] | 2005 | 2006 | 2007 | 2008 |
|---|---|---|---|---|
| Menswear Sales | $1,511.1 | $1,673.2 | $1,949.9 | $2,155.7 |
| Womenswear Sales | $119.1 | $203.5 | $286.1 | $322.3 |
| Total Sales | $1,630.2 | $1,876.7 | $2,236.0 | $2,478.0 |
| Cost of Goods Sold | $743.5 | $832.0 | $1,004.8 | $992.9 |
| Operating Income | $202.8 | $231.4 | $301.8 | $279.4 |
| Menswear Net Income | $132.1 | $151.7 | $192 | -- |
| Womenswear Net Income | $2.6 | $9.8 | $19.2 | -- |
| Total Net Income | $134.7 | $161.5 | $211.1 | $164.6 |
Regional Presence
- Germany (21% of 2008 sales)
- Other Europe (48% of 2008 sales)
- Americas (18% of 2008 sales)
- Asia/Other (10% of 2008 sales)
- Royalties (3% of 2008 sales)
- Watches - manufactured by Movado Group, Inc. (NYSE:MOV)
- Eyewear - licensed to Safilo S.p.A. (SFL-MI)
- Fragrances - include HUGO Man, HUGO XY, HUGO Woman, and HUGO XX
Trends and Forces
Expenses per employee down 13% between 1998-2008
Between 1998 and 2008, the number of employees at Hugo Boss increased from 2,195 to 9,728, an increase of 343%; during the same time period, total personnel expenses increased from €91.7 to €353.5 (285%).[12] Dividing the two figures shows that total average expenses per employee fell from €41,776 in 1998 to €36,338 in 2008. One factor driving this trend has been the company's shifting of manufacturing to lower-cost regions. Hugo Boss manufactures most of its own products in factories located in the U.S., Poland, Italy, and Turkey (the company's single-largest production site).[13] In 2006, the average hourly wage for Turkish workers in the textile and leather manufacturing sectors was $2.31 per hour, much less than comparable wages in Germany, Hugo Boss's home country.[14] In addition, all of the company's handbags are manufactured in China, where the average wage for workers in the manufacturing sector was just $0.67 per hour in 2004.[15] Hugo Boss also announced in September 2008 that it would be partnering with Indian firm Pokarna Ltd to manufacture high-end men's dress shirts.[16]
Global recession hitting sales growth
Despite the relative historical insulation of luxury manufacturers and retailers from economic downturns, Hugo Boss and other luxury manufacturers have felt the effects of the 2008 global financial crisis. In 2008, Hugo Boss's total sales increased 3% from 2007, while net income actually fell 27%[17] (compared with sales and net income growth of 9% and 20%, respectively, from 2006-2007).[18] In the fourth quarter of 2008, sales actually fell 17% and the company posted a quarterly loss of $23.5 million, showing a worsening of conditions as 2008 progressed.[19][20] Since 88% of Hugo Boss's 2008 sales were made in Europe and the Americas, two of the hardest-hit regions, lower consumer discretionary spending in these economies could continue to depress sales growth and hit earnings. One bright spot is the company's operations in Asian markets, which posted 2008 sales growth of 21% (25% in local currencies, before converting to the euro).[21]
Strong euro hurts sales growth
Unfavorable exchange rates halved Hugo Boss's sales growth from 6% to 3% in 2008, significantly impacting both revenue and net income.[22] Through mid-2008, the euro remained relatively strong compared to the U.S. dollar, British pound, and Hong Kong dollar, some of the most important currencies for Hugo Boss's sales. As a result, each dollar or pound spent on Hugo Boss products converted to a smaller number of euros, which is the currency the company uses to report earnings. For example, 2008 sales in the Americas region were up 10% in local currencies but only 3% after converting to euros, largely due to the weak U.S. dollar.[23] The euro began weakening against major currencies in the second half of 2008, as the global financial crisis spread further throughout the European economies.
Directly Operated Store sales growing strong
Though most of Hugo Boss's sales are made through third-party retailers, sales at its directly operated stores (DOS) have been growing at double-digit rates since 2003. Overall DOS sales have more than tripled from 2003-2008, increasing from 8% to 16% of the company's total sales.[25][26] While there are upfront costs associated with establishing new DOS locations, Hugo Boss estimates that they reach break-even profitability within two years and repay the initial costs within 4-5 years, making DOS a longer-term investment in earnings growth.[27] Additionally, Hugo Boss cites better presentation of its brands and higher-quality customer feedback as advantages to the DOS model. As such, the company has been increasing the number of its DOS steadily since 2001, from 51 to 330 as of 2008.[28]
Competition
Hugo Boss competes primarily with other firms in the so-called "affordable luxury" market, shying away from the ultra-high-end luxury market. The luxury apparel industry is highly fragmented, and many of the leading companies are privately owned, making a competitive analysis somewhat difficult. Additionally, the goods in this industry are not as easily substitutable as in some others; brand loyalty and consumer preferences play a significant role in determining demand for Hugo Boss's products and its sales figures.
Most closely related apparel competitors include:
- Burberry Group PLC (BRBY-LN) manufactures luxury clothing and accessories for both men and women. The company's line of suits competes with Hugo Boss's BOSS Black line.
- LVMH Moet Hennessy L.V. (OTC:LVMUY) is a luxury holding company whose apparel brands include Louis Vuitton, Marc Jacobs, Fendi, and Thomas Pink.
- Link Theory Holdings Co., LTD (3373-TO) produces the Theory apparel brand, which has a comparable price range and target demographc.
- Christian Dior SA (CDI-FR) manufactures a luxury lineup that includes both men's and women's apparel and accessories
- Adolfo Dominguez SA (ADZ-MD) is a Spanish designer whose clothing and accessories are sold throughout Europe and in parts of Asia and the U.S.
Most closely related accessories and leather goods competitors include:
- Coach (NYSE:COH) makes a line of luxury accessories and small leather goods for men and women
- Etienne Aigner AG (AIG-FF) is a German firm specializing in leather goods and (primarily women's) accessories
References
- ↑ HUGO BOSS 2008 Annual Report, page 70
- ↑ HUGO BOSS 2008 Annual Report, page 30
- ↑ HUGO BOSS 2008 Annual Report, page 6
- ↑ HUGO BOSS 2008 Annual Report, page 81
- ↑ HUGO BOSS 2008 Annual Report, page 69
- ↑ HUGO BOSS 2008 Annual Report, page 69
- ↑ HUGO BOSS 2004 Annual Report, page 72
- ↑ HUGO BOSS 2008 Annual Report, page 70
- ↑ HUGO BOSS 2007 Annual Report, page 38
- ↑ HUGO BOSS 2008 Annual Report, page 6-7
- ↑ HUGO BOSS 2008 Annual Report, page 81
- ↑ HUGO BOSS 2008 Annual Report, page 6-7
- ↑ HUGO BOSS 2007 Annual Report, page 39
- ↑ Calculated using data from the Turkish Statistical Institute and the 2006 exchange rate from the CIA World Factbook
- ↑ Labor Costs of Manufacturing Employees in China - Bureau of Labor Statistics
- ↑ Hugo Boss Ticino ties up with Pokarna for shirt manufacturing - Fashion News India
- ↑ HUGO BOSS 2008 Annual Report, page 6
- ↑ HUGO BOSS 2007 Annual Report, page 58
- ↑ HUGO BOSS 2008 Annual Report, page 6
- ↑ Hugo Boss AG (BOSG_p.DE) | Reuters.co.uk
- ↑ HUGO BOSS 2008 Annual Report, page 82
- ↑ HUGO BOSS 2008 Annual Report, page 69
- ↑ HUGO BOSS 2008 Annual Report, page 82
- ↑ HUGO BOSS 2008 Annual Report, page 71
- ↑ Deutsche Bank Global Markets Research - Hugo Boss (November 5, 2007)
- ↑ HUGO BOSS 2008 Annual Report, page 64
- ↑ Deutsche Bank Global Markets Research - Hugo Boss (November 5, 2007)
- ↑ HUGO BOSS 2008 Annual Report, page 64
| ||||||
|
|
